Jersey has no VAT on goods sold there, and, as long as items cost less than £18 and are posted individually, HM Revenue & Customs cannot impose tax when the goods are brought into mainland UK.

Asda and Tesco say they are merely offering the best deal for customers.

But the FPB has argued that Jersey is "essentially" part of the UK - with a UK postal address while record companies also supply the island with UK versions of CDs.

'Level playing field'

"Firms who sell goods such as DVDs and CDs from UK high streets have no such advantages and many are being driven out of business simply because they cannot compete with their rivals' artificially low prices," said FPB chief executive Nick Goulding.

"In simple terms all retailers want, surely not unreasonably, is for the re-introduction of a level playing field.

"The situation is unsustainable and there are small retailers across the country who can't continue to be undermined in this way," Mr Goulding added.

He added that the Treasury was losing an estimated £200m a year as a result of the loophole

The letter - signed by 120 firms including the chains Fopp and Music Zone - comes as record industry representatives are set to discuss the matter at a meeting with the Treasury later.